Sunday, December 16, 2012

eToro : The Terminology of Technical Analysis

Technical analysis is used by traders to identity trends in the prices of traded assets. This type of analysis is popular for short-term traders as it analyzes factors that affect the market over a short period of time. In order to understand technical analysis, traders must learn some important terminology that is used in technical analysis.

Accumulation Area

The accumulation area is a range of prices where traders generally purchase an asset. This area is determined by the corresponding price and the volume. Generally, this area looks like a rectangle and has a price line that moves down and up between the top and bottom limits.

Trend Analysis

Trend analysis is a specific type of technical analysis that attempts to estimate the future movements of asset prices using past data. Trend analysis uses the theory that what has happened to prices in the past will allow traders to predict what will happen with those prices in the future. There are three types of primary trends including long-term, short-term and intermediate.

Bearish and Bullish Harami

A bearish harami is a trend that appears in a candlestick chart. It appears as a big candlestick and is then followed by a significantly smaller candlestick. This small candlestick is located in the vertical range of the bigger candlestick. This pattern indicates that an uptrend is going to end. A bullish harami is similar to a bearish harami but this candlestick chart indicates that downtrend is coming to an end. Below is an image of a candlestick chart on the eToro Webtrader.

Range-Bound Trading

Range-bound trading is a strategy that uses channels to make trading decisions. Traders who use this strategy seek to find major resistance and support levels using technical analysis. Traders will then use these levels to determine when to purchase and trade assets. Generally, channel traders purchase an asset near the support level which is also the bottom of a channel and they trade an asset near the resistance level which is the top of a channel.

What are other important technical analysis terms that new traders should learn? Have you ever engaged in channel or range-bound trading? Please feel free to leave your comments below.

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Disclaimer
The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities.
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